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Dynamic Contracting under Permanent and Transitory Private Information

Ungureanu, S. (2013). Dynamic Contracting under Permanent and Transitory Private Information (13/07). London, UK: Department of Economics, City University London.


To understand how firms create and maintain long term relationships with consumers, or how procurement relations evolve over time, it is useful to study a dynamic variant of the classical two-type-buyer contract in mechanism design. It is less trivial and more interesting if the utility determinant (or utility type) is not fixed or completely random, and fair assumptions are that it is either stochastic, or given by a distribution whose parameters are common knowledge. The first approach is that of Battaglini (2005), while the second is pursued in this paper. With two possible types of buyers, the buyer more likely to have a high utility type will receive the first-best allocations, while the other will receive the first best only if he has the high utility type.

Publication Type: Monograph (Discussion Paper)
Additional Information: © 2013 the authors.
Publisher Keywords: dynamic contracting, mechanism design, truthful reporting, information structure, learning
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Policy & Global Affairs > Economics > Discussion Paper Series
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